Bertero v. National General Corp.

• Decision Date: 10 December 1974
• Citation: 118 Cal.Rptr. 184,529 P.2d 608,13 Cal.3d 43
• Court: California Supreme Court
• Parties: , 529 P.2d 608, 65 A.L.R.3d 878 John B. BERTERO, Plaintiff and Respondent, v. NATIONAL GENERAL CORPORATION et al., Defendants and Appellants. L.A. 30156. In Bank

Page 184

118 Cal.Rptr. 184

13 Cal.3d 43, 529 P.2d 608, 65 A.L.R.3d 878

John B. BERTERO, Plaintiff and Respondent, v. NATIONAL GENERAL CORPORATION et al., Defendants and Appellants.

L.A. 30156.

Supreme Court of California,

In Bank.

Dec. 10, 1974.

As Modified on Denial of Rehearing Jan. 29, 1975.

Murchison, Cumming, Baker & Velpmen, John Baker, Los Angeles, Lascher & Rader, Edward L. Lascher, Ventura, Cummins, White & Breidenbach, James O. White and W. F. Rylaarsdam, Los Angeles, for defendants and appellants.

Bodkin, Breslin & Luddy, Henry G. Bodkin, Jr., and Timothy J. Sargent, Los Angeles, for plaintiff and respondent.

WRIGHT, Chief Justice.

Defendants National General Corporation (National), NGC Theatre Corporation (NGC) and Eugene V. Klein appeal from a judgment upon a jury verdict totaling $1,178,952.77 in a malicious prosecution action in favor of plaintiff John B. Bertero. The award consists of compensatory damages of $553,952.77 against the three defendants and punitive damages of $625,000 allocated as follows: $350,000 against National, $25,000 against NGC and $250,000 against Klein. We conclude that the evidence supports the jury findings on the issues of liability and damages except as to an award as part of compensatory damages for attorney fees in the sum of $25,000. The judgment is thus modified and, as modified, affirmed.

Bertero was elected president of National in 1958, culminating a lengthy association as an executive of both that company and of NCG's predecessor in interest, Fox West Coast Theatres Corporation (Fox), a controlled subsidiary. In 1959, following a power struggle within National, Bertero resigned his office but retained his seat on its board of directors. Coincident with the resignation Bertero entered into a 10-year employment contract with National. Under the terms of the agreement, which superseded an existing employment contract, he was to serve as a part-time executive for five years followed by five years of service as an advisor and consultant. The agreement was unanimously ratified by the board of directors (including Klein) and Fox guaranteed National's performance. Klein, a major shareholder in National, became its president in early 1961. He and Bertero had previously disagreed over matters of company policy and their discord rapidly dissolved into animosity. Bertero resigned from his directorship in June of that year but rebuffed efforts to buy the remainder of the 1959 employment contract or to induce him to surrender stock options which he had obtained prior to 1959. On March 13, 1962, after Klein had secured control of National's board of directors, Bertero surrendered a portion of his stock options.

On March 29, Klein attempted to persuade Bertero to divest himself of his remaining stock options and to terminate the 1959 employment agreement. Bertero refused to acquiesce. Klein expressed his displeasure and in a letter dated that same day informed Bertero that the 1959 agreement was 'invalid, unenforceable and an imposition upon the company.' He simultaneously ordered Bertero's salary, life and health insurance benefits and stock options terminated.

In June of 1962 Bertero initiated an action against National and Fox seeking declaratory relief as to the 1959 agreement and the stock options purportedly terminated by Klein, as well as damages for unpaid salary from the date of repudiation. The corporate defendants, controlled by Klein, filed a motion to compel arbitration of the contractual disputes. This motion was ultimately resolved adversely to the defendants. (Bertero v. Superior Court (1963) 216 Cal.App.2d 213, 30 Cal.Rptr. 719.) An answer was then filed alleging that the 1959 agreement (1) was without consideration; (2) had been obtained through duress; and (3) had been secured through undue influence of Bertero on the board of directors. A month later the defendants filed an amended answer together with a cross-pleading seeking recovery of salary in the amount of $104,000 previously paid pursuant to the employment contract.

Bertero prevailed in the suit. The judgment declared the stock options and the 1959 employment agreement to be valid, and the cross-complaint was dismissed with prejudice. The judgment was affirmed on appeal. (Bertero v. National General Corp. (1967) 254 Cal.App.2d 126, 62 Cal.Rptr. 714.) Bertero received $607,069 in immediate satisfaction of the judgment and in excess of $50,000 in installments of salary thereafter becoming due.

Bertero thereupon instituted the instant action seeking damages for the malicious prosecution of the cross-complaint. At the pleading and pretrial stages he proceeded on three separate theories within the rubric of malicious prosecution, but the case was eventually presented to the jury solely on the theory that the cross-complaint had been maliciously prosecuted. As this was the only theory upon which liability was sought to be predicated at trial we need not consider the validity of other asserted grounds for recovery. (See Gyerman v. United States Lines Co. (1972) 7 Cal.3d 488, 499, 102 Cal.Rptr. 795, 498 P.2d 1043; Estate of Westerman (1968) 68 Cal.2d 267, 279, 66 Cal.Rptr. 29, 437 P.2d 517; Ernst v. Searle (1933) 218 Cal. 233, 240--241, 22 P.2d 715.)

To establish a cause of action for the malicious prosecution of a civil proceeding, a plaintiff must plead and prove that the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination in his, plaintiff's favor (Babb v. Superior Court (1971) 3 Cal.3d 841, 845, 92 Cal.Rptr. 179, 479 P.2d 379; White Lighting Co. v. Wolfson (1968) 68 Cal.2d 336, 349, 66 Cal.Rptr. 697, 438 P.2d 345; Hurgren v. Union Mutual Life Ins. Co. (1904) 141 Cal. 585, 587, 75 P. 168); (2) was brought without probable cause (Grant v. Moore (1866) 29 Cal. 644, 648; Masterson v. Pig'n Whistle Corp. (1958) 161 Cal.App.2d 323, 335, 326 P.2d 918; Metzenbaum v. Metzenbaum (1953) 121 Cal.App.2d 64, 68, 262 P.2d 596); and (3) was initiated with malice (Albertson v. Raboff (1956) 46 Cal.2d 375, 383, 295 P.2d 405; Baker v. Gawthorne (1947) 82 Cal.App.2d 496, 498, 186 P.2d 981). (See generally 4 Witkin, Summary of Cal.Law (8th ed.) Torts, § 255, pp. 2531--2532; Prosser, Law of Torts (4th ed. 1971) § 120, pp. 850--856; 1 Harper & James, The Law of Torts (1956) § 4.8.)

Action for Malicious Prosecution Based on Cross-Pleadings

We initially consider whether an action for malicious prosecution lies when based on the prosecution of a cross-pleading which allegedly is maliciously filed. Defendants argue that (1) their cross-complaint did not initiate a judicial proceeding; (2) that it was in effect only an affirmative defense which they were obligated to assert under penalty of waiver (see Code Civ.Proc., § 439); and (3) that it did not interject any theories or burdens not already raised by the answer to the complaint.

The malicious commencement of a civil proceeding is actionable because it harms the individual against whom the claim is made, and also because it threatens the efficient administration of justice. The individual is harmed because he is compelled to defend against a fabricated claim which not only subjects him to the panoply of psychological pressures most civil defendants suffer, but also to the additional stress of attempting to resist a suit commenced out of spite or ill will, often magnified by slanderous allegations in the pleadings. In recognition of the wrong done the victim of such a tort, settled law permits him to recover the cost of defending the prior action including reasonable attorney's fees (Stevens v. Chisholm (1919) 179 Cal. 557, 564, 178 P. 128; Eastin v. Bank of Stockton (1884) 66 Cal. 123, 125--126, 4 P. 1106), compensation for injury to his reputation or impairment of his social and business standing in the community (Ray Wong v. Earle C. Anthony, Inc. (1926) 199 Cal. 15, 18, 247 P. 894; Lerner v. Glickfeld (1960) 187 Cal.App.2d 514, 526, 9 Cal.Rptr. 686), and for mental or emotional distress (Singleton v. Perry (1955) 45 Cal.2d 489, 495, 289 P.2d 794). ¹

The judicial process is adversely affected by a malicious prosecuted cause not only by the clogging of already crowded dockets, but by the unscrupulous use of the courts by individuals '. . . as instruments with which to maliciously injure their fellow men.' (Teesdale v. Liebschwager et al. (1919) 42 S.D. 323, 325, 174 N.W. 620, 621.)

The harm to society and to the individual cross-defendant caused by the filing of a cross-pleading without probable cause and with malice is substantially similar to that occasioned by the filing of a complaint or other initial pleading known to be false or meritless. The malicious cross-plaintiff, like the malicious plaintiff, uses the judicial process as a vehicle for harassing or vexing his adversary or as a means of coercing the settlement of a collateral matter. The cross-defendant, like the defendant in an original cause maliciously prosecuted, is compelled to expend attorney's fees in defending against the false charge and may suffer the same mental or emotional distress and possible loss of reputation and standing in the community.

For our purposes no sound reason appears for treating a cause of action initiated by a cross-pleading as only an integral part of that cause initiated by the complaint. In Skaff v. Small Claims Court (1968) 68 Cal.2d 76, 65 Cal.Rptr. 65, 435 P.2d 825, we acknowledged that the filing of a counterclaim instituted a '. . . separate, simultaneous action' and reasoned that for purposes of the cross-action, the cross-defendant was a defendant, noting: '(i) n analyzing counterclaims and cross-complaints, this court had recognized that 'these cross-actions . . . are still distinct and independent causes of action, so that when properly interposed and stated the defendant becomes in respect to the matters pleaded by him, an actor, and there are two simultaneous actions pending...